How the Dutch became the frontrunners in payment transformation

How the Dutch became the frontrunners in payment transformation

23 February 23

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The views expressed in this article are solely those of the author and should not be attributed to the European Payments Council.

The Netherlands has a fascinating and ever-changing payment landscape where card payments are increasing each year and are preferred over cash payments. We wanted to know more about Dutch payment habits so we spoke to Gijs Boudewijn, General Manager of the Dutch Payments Association. Our infographic summarises all you need to know about the Dutch payment landscape.

What are the main characteristics of the Dutch payment landscape and its recent evolution?

The Dutch have a history of being at the forefront of payment innovations. Our dense population of 18 million people has a high penetration of high-speed internet for households. This has contributed to an extensive migration to digitally initiated payments.

Electronic banking was introduced for consumers in the early nineties. Today, less than one percent of Dutch credit transfers are paper based. Card payments overtook cash payments in Dutch retail in 2014, growing to almost eighty percent in 2022.

Ease of use, broad support by payment service providers (PSPs) and attractive pricing of debit cards, direct debits, credit transfers and iDEAL e-payments were important building blocks for the fast transformation to digital payments. Online banking e-payment scheme iDEAL was launched in 2005 and offers a 24/7 immediate online payment guarantee to the beneficiary. To keep up with everything becoming ‘instant’, Dutch PSPs developed a true common instant payments infrastructure that went live in 2019.

In October 2022, the Dutch Payments Association presented the Study into the Costs and Revenues of Payment Services for Financial Institutions 2021. Could you share the key findings of this study?

The report provides a fair picture of the banking costs and revenues associated with payment services in the Netherlands for the first time since 2006. The report shows that the Dutch payment system is very efficient and user fees are much lower than the European average. The transaction volume has more than doubled compared to 2005, while processing fees have only increased by five percent. Nevertheless, banks suffered a combined loss of five-hundred-and-seventy million euros on payment services in 2021. The loss in 2005 was just twenty-three million euros.

The loss in 2021 was mainly caused by a drop in net interest revenues on the one hand and by much higher risk management and compliance costs on the other. That is a great concern.

We engage in an open dialogue with our members and stakeholders to determine how our high-quality payment system can be financed in a future-proofed way while keeping it secure, reliable, accessible and inclusive.

The Netherlands were one of the pioneering countries for SEPA Instant Credit Transfer (SCT Inst). How would you describe its first years of experience processing SCT Inst transactions?

In the Netherlands instant payments have been available since April 2019. Their adoption has been very fast and smooth. Dutch PSPs offer SCT Inst by default for all digitally initiated single transfers. This effectively makes instant payments the ‘new normal’.

In December 2022 over forty million instant payments were exchanged between different PSPs. This is on top of instantly processed intra-PSP payments with roughly the same volume. Currently Dutch instant payments are mostly used for person-to-person (P2P) transactions: for example, to pay for a used bike from a private seller or to redeem everyone’s share for a group dinner. Several PSPs already offer smart instant transfers for bulk payments. These are broken down into ‘buckets’ that are processed instantly at night during off-peak hours. Each initiating PSP has a ‘smoothing’ mechanism to limit the ‘buckets’ it adds to the common infrastructure in order to keep a balanced load at receiving PSPs.

Confirmation of Payee (CoP) was first launched in the Netherlands in 2017 and already covers nearly all single domestic digital credit transfers, including all single domestic instant payments. Dutch PSPs are well positioned to extend this service to cross-border instant payments on short notice. Furthermore, CoP is increasingly used in the Netherlands to combat identity fraud with mandates for SEPA direct debits.

Finally, a broader question: how do you see the Dutch payment landscape developing over the coming five years?

In all likelihood, the Netherlands will remain a frontrunner in the eurozone for payment transformations over the coming years. We are working on arrangements for an adequate and affordable cash infrastructure while the use of cash continues to decline. At the same time, digital retail payment methods will diversify. At the physical point of interaction, the era of predominance for physical debit cards will come to an end. They will share the pie of retail transactions with virtualised cards in smart devices and non-card-based account-to-account (A2A) payment methods. E-commerce payments may diversify as well, with open banking solutions leveraging the instant payments infrastructure, as well as debit cards enabled for remote payments. 

Overall, users will have more choices in payment methods for different use cases, challenging the industry to ensure that payments remain accessible for all users from the tech-savvy to those who struggle with digital developments. 

Card and credit-transfer functionality will increasingly overlap, while domestic infrastructures will continue to evolve into a pan-European amalgam with ever fewer local exceptions.

Finally, PSPs are likely to further diversify, with more international providers and specialised providers of a single type of service or for a single user segment.

Infographic: The Dutch payment landscape (February 2023)
(Click to enlarge and download)


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